Friday Q&A

Friday Q&A Hello Smart Option Sellers! I just realized I had the wrong date listed (Oct 18) on the earlier email today. Geez! TGIF! And speaking of the earlier alert... We had two trades recommended, one being an adjustment from a previous unfilled trade. Once again, the stocks popped on us a bit, which only allowed the first few Smart Option Seller members a chance to get filled. When stocks rise, put option prices go down. I'm thankful that the stocks move in the direction we need, which means we're doing something right. But at the same time, I'm just frustrated that we NEVER seem to get a pull-back of any meaningful magnitude that lets everyone easily get involved with the trade at the same time. There's three solutions for that, none of which I'm too fond of: 1. We use a lower entry sell price. This is fine, but then sometimes the payment is too small. 2. We use a higher strike price. This is fine too, but then we don't have as much downside cushion. 3. We go out further in time to a longer expiration date. This is fine too, but then we have to wait longer to make a profit. None are ideal, but are worthy considerations. If you did not get filled today, let's wait a bit and see if the stocks have a decent pull-back to the point where the rest of the gang can get filled. Using the March & April 2018 expiration dates gives us enough time where a small move in the stock should produce enough movement in the put option price to allow easy fills. Hang in there, and keep your orders working "GTC". Now, onto the questions. Q: Hi Lee: I find that we have a lot of our stocks have the "C" in front of the price. I assume that is the close from the previous day. Some of them have been that way for days. My question is. Isn't it the job of the market maker to see that some kind of trade is done every day? Even one contract would do. A: Yes, the "C" indicates the closing price from the last time it traded, not necessarily from the day before. Some of those closing prices can be from days or weeks ago, especially if it's an unpopular option. Always look at the bid/ask quote to get an accurate assessment of the option's value. And yes, it's the market-makers job to always provide a liquid bid/ask market, but it's not necessary for them to make sure it trades every day. If someone comes to trade with them, then a new price will show up. Q: Hi Lee, For several years now you have been holding on to max. $50 stocks to write puts on. But the S&P and Dow keep hitting record after record ... meaning all stocks go up and up ... meaning more and more stocks go above $50 ... meaning your basket of stocks to choose from is getting smaller and smaller. What this also means, and I'm noticing that, that you are more and more not sticking to your rule only to select stocks after a decent pullback. So, why not increase the $50 limit to $100 ? ... I would rather get a trade on a bluechip $75 stock after a pullback, then a trade on a $40 stock with no pullback. What also is an advantage of higher stock prices is that the premium could be higher or the OTM% could be higher or the number of days to expiration could be shorter; a disadvantage is the higher margin off course (where I have no problem with personally). A: Thank you. This is a very accurate assessment of what's happening in the market and the rules we use to pick stocks. It's true that I like to stick with stocks at $50 and under. In the old Instant Money Trader days (my old service), we used to stick with stocks at $35 and under. So we are moving with the times, I'm just holding out a bit longer. I will pick a higher-priced stock if necessary, but for now, I believe we still have a great selection of lower-priced stocks. Even still, if the market continues to go up, the higher-priced stocks will get shut out too. We just need more normal, continuous pull-backs from time to time. The stock market is the only place that gives people a decent chance to make any kind of money from their investments, and until that changes, it looks like we'll have to fight this uphill (literally) battle. I'm not worried about it. There's always a trade we can do. But, I will keep your suggestion in mind. Thanks for writing in. Q: Hello Lee: I sold to open these puts on 7/27/2017 at $0.25. If the price of a sold put increases to the point I am losing 50% of the money gotten from the sale I buy to close then. In this case I bought to close my position on 8/15/2017 at $0.40, losing 60%. In this case, my 50% loss and out was a bad idea. Most of the time it has been a good idea. I would like to hear your comment. A: This comment is in regards to the GSK put-sell position that we just recently closed out for a profit. At one point during the trade while it was still open, the price of GSK stock had fallen, popping the put option price up to $.40 and stopping our member out of the trade. This was a risk-management position he took on his own. I have no problem with anyone instituting a risk-management plan on their own. I'm sure it has worked well for this member. In our case, we hold the trade until I instruct everyone to take defensive action. And even if we don't take defensive action, we always know if we have to buy the stock (by getting assigned), we will be getting a good stock at an attractive price. Always keep that in the back of your mind when selling put options - stick to stocks that you wouldn't mind holding in a long-term portfolio. That's all for the questions. Keep sending them in if you have any. You can reach us here I will send an update on Monday about our two new trades from earlier today. Have a great weekend! Regards, Lee Let's Grab That Cash!